Not all audits look the same. While financial audits check what a company earns and owns, cost audits focus on how efficiently a company produces or delivers services. Section 148 of the Companies Act, 2013 deals with cost records and cost audit, a compliance area that often applies to companies engaged in strategic or regulated industries.
From my experience, many businesses assume cost audit is rare or outdated—until they receive a government notification. In reality, Section 148 empowers the Central Government to specify audit of items of cost in respect of certain companies, based on their industry, turnover, or net worth. Understanding this section early helps companies avoid last-minute panic and costly non-compliance.
What Is Section 148 of the Companies Act, 2013?
Section 148 contains provisions relating to the cost records and cost audit applicability. It gives the Central Government the authority to:
- Direct certain companies to maintain detailed cost records
- Mandate a cost audit conducted by a qualified Cost Accountant
- Prescribe forms, timelines, and standards for reporting
This audit is in addition to the regular statutory financial audit under Section 143.
Why Cost Audit Exists in the First Place
Cost audits are not about fault-finding. Their purpose is to:
- Promote efficiency in production and services
- Ensure fair pricing in regulated sectors
- Increase transparency in cost structures
- Protect consumer and public interest
That’s why every company engaged in a strategic industry is more likely to fall under Section 148 scrutiny.
Which Companies Does Section 148 Apply To?
The section itself does not list industries. Instead, it authorises the Central Government to notify them.
Typically, cost audit applies to companies:
- In manufacturing, processing, or infrastructure sectors
- Providing large-scale or essential services
- Crossing prescribed turnover or net worth thresholds
Industries often include:
- Power, energy, telecom
- Pharmaceuticals and chemicals
- Cement, sugar, petroleum
- Engineering goods and utilities
The idea is simple: where pricing and costs impact the economy, cost audits matter.
Cost Records: The First Level of Compliance
What Are Cost Records?
Cost records include detailed data on:
- Material consumption
- Labour costs
- Overheads
- Utilities
- Product-wise and service-wise cost break-ups
Section 148 requires applicable companies to maintain cost records as prescribed, even before a cost audit is triggered.
A Common Misunderstanding
Many companies assume “no audit = no records.”
That’s incorrect. Cost records may be mandatory even if cost audit is not.
Cost Audit Under Section 148
When Is Cost Audit Required?
Cost audit kicks in when:
- The company is notified under cost audit rules
- Turnover/net worth exceeds specified limits
- The Central Government mandates audit of cost items
Section 148 specifies the procedure regarding cost audit of specific companies, making it a statutory obligation, not a choice.
Appointment of Cost Auditor
Who Can Be Appointed?
Only a qualified Cost Accountant holding a valid certificate of practice.
How Is the Auditor Appointed?
- The Board of Directors appoints the cost auditor
- Remuneration is approved by shareholders
- Appointment must be informed to ROC
This separation ensures independence—just like statutory audits.
Cost Audit Reports and Forms
Once audit is completed:
- The cost auditor submits the report to the Board
- The company files the report with the Central Government
Key forms include:
- CRA-3 / CRA-4 (depending on applicability and rules)
Missing these filings is one of the most common compliance failures I’ve seen in practice.
Cost Audit Standards and Discipline
Section 148 ties cost audit to cost auditing standards, ensuring:
- Uniform reporting
- Industry comparability
- Reliable cost data
This standardisation is what makes cost audit useful—not just compliant.
Relationship Between Financial Audit and Cost Audit
A frequent question: Do both audits overlap?
The answer: They serve different purposes.
- Financial audit checks profits and financial position
- Cost audit checks efficiency, pricing, and cost control
Section 148 ensures both coexist without conflict.
Penalties for Non-Compliance
Ignoring Section 148 can lead to:
- Monetary penalties on the company
- Fines on directors and officers
- Regulatory scrutiny in future periods
More importantly, it affects corporate credibility—especially in regulated sectors.
Practical Insight From Real Companies
I’ve seen companies improve margins simply by reviewing cost audit observations. When implemented properly, Section 148 doesn’t just satisfy regulators—it improves decision-making.
Cost audit, when viewed correctly, becomes a management tool, not a compliance burden.
Key Takeaways for Companies
- Don’t wait for notices—check applicability proactively
- Maintain cost records even if audit isn’t triggered yet
- Appoint cost auditors on time
- File reports accurately and within deadlines
Section 148 is preventive law, not punitive law.
Conclusion
Section 148 of the Companies Act, 2013 brings discipline to cost accounting in industries where efficiency and pricing matter the most. By empowering the Central Government to specify audit of items of cost in respect of certain companies, the law ensures transparency beyond profit figures.
For companies covered under it, compliance is not optional—but it can be beneficial when handled correctly.
👉 Need help checking applicability, appointing a cost auditor, or filing CRA forms? Visit callmyca.com for expert assistance that keeps compliance stress-free.
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Section 148 of the Companies Act, 2013 governs cost records and cost audit, empowering the Central Government to mandate cost audits for specified companies.
